UNITED STATES DEPARTMENT OF THE INTERIOR
BUREAU OF LAND MANAGEMENT
WASHINGTON, D.C. 20240
May 11, 2006
In Reply Refer To:
3100 (310) P
EMS TRANSMISSION 05/18/2006
Instruction Memorandum No. 2006-153
Expires: 09/30/2007
To:             State Directors, Wyoming and Montana

From:          Director                                                                                                                                          

Subject:      Policy and Guidance on Conflicts between Coalbed Natural Gas (CBNG) and Surface Coal Mine Development in the Powder River Basin

 

Program Area: Coalbed natural gas development and surface coal mining Powder River Basin

Purpose: Provide direction concerning development conflicts between surface coal mining and CBNG operations on federal leases in the Powder River Basin and to clarify the actions the Bureau of Land Management (BLM) can and will take, if necessary.
Policy/Action: The BLM will seek to achieve the following goals in resolving development conflicts between CBNG and surface coal mining on federal coal and federal oil and gas leases. This policy supersedes all other directives on this subject.
  • Optimize the recovery of both resources in an endeavor to secure the maximum return to the public in revenue and energy production.
  • Prevent avoidable waste of the public’s resources utilizing authority under existing statutes, regulations and lease terms.
  • Honor the rights of each lessee, subject to the terms of the lease and sound principles of resource conservation.
  • Protect public health and safety, and mitigate environmental impacts.
It is the policy of the BLM to encourage oil and gas and coal companies to resolve conflicts between themselves and when requested, the BLM will assist in facilitating agreements between the companies. The BLM will also exercise authority provided in the leases, applicable statutes, and regulations to manage federal mineral development in the public’s best interest.

Conflict Resolution or Cooperative Development Agreements: The policy set forth in this memorandum requires, if requested by the lessees, the Authorized Officer (AO) to review and/or approve conflict resolution or cooperative development agreements between oil and gas and coal lessees.  The BLM will advise, review and/or approve such an agreement only after reviewing all terms and conditions of the agreement to ensure that the provisions are consistent with this policy, applicable regulations, and statutes.  The BLM’s approval provides assurances to the parties that the agreement is consistent with lease obligations, regulations, statutes, requirements of conservation of the resources, and the provisions of this policy. The BLM’s approval of the agreement reduces the risk of delays, disapproval of permits, or the issuance of operating orders inconsistent with actions required under the agreement.
Conflict Administration Zone: The BLM will establish a Conflict Administration Zone (CAZ) around each active coal mine or Lease-By-Application (LBA) area that has a potential for conflict with CBNG development; in order to provide timely notice to the coal and CBNG lessees or operators. This will provide more certainty to both oil and gas and coal lessees or operators as to the need for the prevention and resolution of such conflict.
  1. The BLM will establish an expected 10-year mine-out zone around each surface mine where CBNG development is already underway or is anticipated. The zone will be used to designate a CAZ.
  2. The BLM may include within a CAZ all or part of an approved LBA. The purpose is to anticipate and mitigate, if not prevent, future conflicts on coal tracts that may be leased.
  3. Each CAZ must be reviewed annually to adjust its boundary.
Once the CAZ is identified, the CBNG lessees or operators will be notified immediately that their oil and gas lease is within the CAZ. Specifically, the oil and gas lessee or operator will be notified of near-future mining activities, BLM’s authority to require the proper and timely development of leased resources, the prevention of waste and proper abandonment of wells, and the potential availability of incentives such as a royalty rate reduction to encourage development. Upon establishment of a CAZ around a coal mine, lease modification, or LBA tract, the BLM will review the status of all oil and gas leases within the CAZ for CBNG development and take the following actions:
  1. For each oil and gas lease that is producing CBNG, the Authorized Officer (AO) will send a letter of notification to the lessee and operator that the lease is within the CAZ.
  2. For leases that are not producing CBNG or for leases that are not being diligently developed for CBNG, the AO will, in the letter of notification, request to either immediately drill and produce all previously approved Applications For Permit to Drill (APDs), immediately submit APDs for approval, or show cause why the lessee or operator should not be required to produce the CBNG in such a manner that will maximize recovery of the federal natural gas prior to the removal of the coal.  The letter of notification should also require the lessee or operator to provide in writing a response to the AO within a designated timeframe.
  3. Lessees or operators who reply that it is uneconomical to drill one or more CBNG wells on the lease and, therefore, do not intend to develop the CBNG resources must supply satisfactory proof supporting their assertion to the AO. This proof must factor in a royalty rate reduction of 50 percent.
  4. Lessees or operators who do not respond within the requisite timeframe or cannot demonstrate that drilling CBNG wells is uneconomical will be ordered to drill wells, consistent with good economic operating practices, pursuant to 43 CFR 3162.2-1(b) and provisions of the lease requiring prevention of waste.  Lessees or operators who fail to comply with the order to drill wells are subject to the full range of sanctions for noncompliance with an order of the AO.
Prompt compliance will accelerate the recovery of the cost of drilling and operating a well and help to maximize the return to the lessee. All APDs submitted within a CAZ will be given a high priority for processing. This will allow extraction of as much of the CBNG resource as possible before a conflict with the advancing mine.
Incentive to Accelerate Natural Gas Production: To avoid the bypass of federal coal resources or to avoid waste of or to conserve the CBNG resources, the BLM may offer a royalty rate reduction to oil and gas lessees. This incentive is to encourage CBNG operators to drill wells and extract as much CBNG as possible in the time available to allow uninterrupted coal mining operations. This conflict policy does not apply to oil and gas wells which produce from zones deeper than those coal seams being mined.
To qualify for a royalty rate reduction the oil and gas lessee must agree to expedite CBNG production in a manner that will maximize the recovery of the resource before required abandonment, and to cease operations and abandon wells and facilities at BLM’s request prior to the arrival of mining operations in the area of the wells. The BLM will notify the oil and gas operator at least 180 days prior to the date when the well should be abandoned. Any royalty rate reduction offered pursuant to this policy will be in the interest of optimizing both the coal and CBNG recovery. Those oil and gas lessees who agree to these conditions will be afforded the following:
  1. Any CBNG well located on a federal oil and gas lease and that is within a CAZ, including existing wells, will be eligible for a 50 percent royalty rate reduction on CBNG production for the remaining life of the well. The BLM has determined that in absence of such royalty reductions, recoverable CBNG within the CAZ is likely not to be produced and further that such reductions are necessary to maximize the recovery of valuable coal deposits.
  2. To receive such a reduction the applicant must:
    1. Submit a plan acceptable to BLM for maximum efficient production of CBNG during the period preceding the anticipated commencement of coal mining operations; and
    2. Agree that, upon the order of the AO, it will cease operations to enable the commencement of coal mining operations, and take such measures to plug well bores, reclaim production pads, and remove production equipment as may be directed by the AO.
Interim Abandonment/Reclamation: Abandonment and reclamation of wells, production pads and related ancillary facilities must be approved by the AO in coordination with the coal lessee. In most cases, permanent reclamation of the well sites, access roads, pipeline rights of way, etc. may not be required, but only stabilized sufficiently to prevent erosion or other negative environmental impacts.
Existing Royalty Relief: Nothing herein is intended to limit the availability of royalty reductions to either the oil and gas or coal lessees under other circumstances that would qualify for such relief under existing regulations and guidance.
  1. Coal Royalty Rate Reduction: Requests for royalty relief from coal lessees, as a result of costs associated with resolution of CBNG and surface coal mine development conflicts, will be handled on a case-by-case basis consistent with current guidance addressing the unsuccessful operations or expanded recovery/extension of mine life: financial test categories in BLM Manual 3485.
  2. Oil and Gas Royalty Rate Reduction: Regulations and guidance for royalty relief for oil and gas under existing regulations can be found in 43 CFR 3103.4 and 43 CFR 3103.4-1.
Background: As development of CBNG accelerates inherent conflicts with nearby surface coal mining will continue to exist. In a majority of cases in the Basin, the oil and gas leases were issued first with a reservation of the right to the government “to dispose of any resource in such lands which will not unreasonably interfere with operations under this lease.” In such cases, the coal leases were issued subject to the condition that coal mining not unreasonably interfere with operations under a preexisting oil and gas lease. The BLM issued an Instruction Memorandum (IM) 2000-081, February 22, 2000, to help BLM offices to manage this issue, however, concerns with potential and actual conflicts continue. It is important that all lessees and operators are made aware that BLM has statutory and regulatory authority over all phases of federal oil and gas production and over Maximum Economic Recovery on federal coal production, and that the BLM will exercise and enforce these authorities, up to and including lease cancellation, should lease terms and regulations not be met. The BLM’s actions will maintain the overriding goal of conserving the resource and maximizing the return to the public in both revenue and energy production, and protecting public health and safety while mitigating environmental impacts. This policy may be considered for other coal basins in the future. Conflicts with underground coal mines may also be considered in the future.
Timeframe: This Instruction Memorandum is effective immediately.
Budget Impact: Some redirection of BLM field office personnel may be required which might impact existing workload priorities.
Manual/Handbook Sections Affected: None.
Coordination: This was coordinated with the Wyoming and Montana BLM State Offices: the BLM Washington Offices of Fluid Minerals, Solid Minerals, and the Department of the Interior Office of the Solicitor.
Contact: Assistant Director, Minerals Realty and Resource Protection at (202) 208-4201.
Signed by:
Authenticated by:
Lawrence E. Benna
Robert M. Williams
Acting, Director
Division of IRM Governance,WO-560